Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Autumn Statement – 22 November
This will be Hunt’s third fiscal statement after taking the reins as Chancellor in October 2022. They have been uneventful compared to some of the former residents of number 11.
A recurring theme in the Chancellor’s previous fiscal statements has been the ongoing freeze of personal allowance thresholds, with these “stealth taxes” applying to inheritance tax, capital gains tax (CGT), VAT, income tax and pension savings.
While an election may be a little time away yet, he may have to offer something as inflation remains stubbornly high at 6.8%, and is still far off one of Prime Minister Rishi Sunak’s five priorities to halve inflation this year – it was 10.7% when he made this pledge – and quite a distance from the Bank of England’s target of 2%.
New Phishing Attacks
Dubbed BEC 3.0 (short for business email compromise 3.0), it involves hackers signing up for free accounts offered by legitimate vendors, then using the accounts to send out invoices or other communications via the software directly to unsuspecting businesses or individuals, embedding malicious activity within them.
While the current wave has focused on QuickBooks, hackers have in the past used similar tools from within other well-known brands such as PayPal, eBay, Google and other software that offers similar capabilities.
BEC 3.0 attack communications come from email addresses associated with established vendors, so they often pass all email authentication or domain checks and arrive straight into recipients’ inboxes.
Buy to Let via Companies
Changes to the tax system is driving landlords to put new BTL properties in limited companies. One of the main reasons is the rising costs of running a rental portfolio, which has been exacerbated by soaring interest rates.
Recent research suggests that 74% of landlords who intend to purchase buy-to-let property in the next 12 months will do so via a limited company.
The main advantage is that limited companies can deduct mortgage interest from company income and pay tax at corporation tax rates, rather than an individual landlord’s personal income tax rate, so 19%, 26.5% or 25%.
Limited company ownership can also offer more favourable mortgage financing options. Most lenders set interest coverage ratios at 145% for higher rate taxpayers, whereas limited company applications require a ratio of 125%. Additionally, limited company landlords can typically secure higher loan amounts, further driving the adoption of this approach.
Transferring Company Funds to Directors
We see companies that have built up significant cash balances and want to withdraw some to invest in personal deposit accounts where interest rates are higher.
HMRC may interpret this withdrawal as a loan, a dividend or a salary, each with its own tax consequences.
Loan – there is a repayable charge on the company as a percentage of the overdrawn loan not repaid within 9 months of the year end.
Dividend – taxable at the dividend rate of tax on the shareholder.
Employment income – potentially liable to tax and national insurance.
But consider this. If you take out a loan just after the company year end, you have 21 months to repay it. You can opt to have the interest foregone by the company assesses as a benefit in kind, but that will not break the bank. If the load is repaid within 9 months of the year end, the repayable tax charge is not due.
I have seen this used to good effect to provide finance for a director to build a new house, where a mortgage was obtained once the house was finished, The mortgage repaid the loan.
Invalid R&D Claims
HMRC are reported to have said that almost half of all claims received so far between 8 August and 3 September have been submitted by customers without the required additional information form (AIF).
This is the new reporting regime.
These forms are required for claims for both SME R&D tax relief and the R&D expenditure credit (RDEC).
Tax reliefs for R&D spending from the beginning of April 2023 have been reduced, and many companies preparing year-end accounts for financial periods which run beyond that date will now begin to feel the impacts of the reductions.
Nearly half of claims submitted since 8 August, when the new mandatory additional digital information forms were introduced, have been completed incorrectly.’
Companies that have not complied with the new forms will soon begin hearing from HMRC saying their claim is invalid unless they amend their returns. This may be do-able for some but for those who have left it all to the last minute it could mean their claim is lost forever.’
Businesses submitting R&D tax relief claims now need to provide much more information than previously.
In addition, HMRC investigations into R&D tax relief error and fraud have significantly increased, particularly over the last couple of years, to combat a boom in unregulated R&D tax consultancies.
HMRC signs £4.4m cloud IT contract
Kyndryl is a former IBM spinout company.
The contract, worth £4.4m, will last 15 months. Kyndryl will manage a proportion of HMRC’s mainframe services.
Kyndryl Consult will also be preparing HMRC for its planned modernisation and move to the cloud, with much of the product designed to be finalised by the end of 2023.
It will work with Microsoft and the Advanced Computer Software Group to develop modernisation options for HMRC’s IT operations.
IBM spun off Kyndryl as a standalone entity in November 2021 and has since been offering cloud services. For the fiscal year 2023, the company reported revenue of $17bn (£13.5bn), but made significant losses of £104m in the UK in the last quarter.
This year Kyndryl has won contracts with Legal & General, Department for Environment, Food & Rural Affairs (Defra), and BT Group.
HMRC currently has one of the largest IT estates in Europe with over 600 systems and 800 terabytes of data.
AI and Accountants
AI tools are proving useful for completing time-consuming tasks accurately and efficiently, They are not yet destroying thousands of jobs. Nor do they seem likely to wipe out humanity. But some AI tools will be used by criminals to commit fraud, against victims including accountancy firms and their clients.
The current extent of such fraud is unknown but whatever it is just now, it will grow over the next few years.
Government figures suggest that almost one in three businesses (32%) were affected by cyber security incidents during 2022. This is where AI technologies help create convincing fake emails, documents or images which could be used in phishing emails.
Fake materials created with AI might also facilitate payment diversion or invoice fraud, in which a recipient is conned into making payments to fraudsters. The same techniques might be used to persuade a recipient that an email they receive has come from their own bank, or from HMRC.
AI tools can also be used by fraudsters to gather useful information from company websites, social media platforms and other online sources, which they can then use to make emails and/or supporting fake documents more convincing.
Hybrid working has become part and parcel of the new working accountancy world, but it has also thrown up some significant workplace challenges. Here are just some:
- Managers tend to feel that working in the office is most valuable for younger employees, but those younger members of staff think that remote working is better and a more positive experience for them
- The negative effect hybrid working is having on employee collaboration and workplace culture.
- Hybrid working tends to lead to more flexibility in roles with tasks being allocated to different people in different roles, blurring the roles.
- The onus now seems to fall to the employer to justify in-person working, rather than on the employee to build a case for working remotely.
- The increase in remote working among employees also creates headaches for managers who must adapt to new workflows and team dynamics, especially where working practices have shifted dramatically.
- Not so many in the office, so what do you do with all that surplus floor.
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at email@example.com.